There’s a lot to like about the Lofty real estate crowdfunding platform. You can buy fractional shares in investment properties for just $50 apiece, collect daily rental income, and sell those shares whenever you want.
But their secondary market for buying and selling shares relies on some high-tech tools including blockchain and cryptocurrencies. Not everyone is comfortable in that space, to put it mildly.
Intrigued? Here’s how Lofty.ai works.
Lofty Review at a Glance
Minimum Investment: $50
Prospective Returns: 0-12% annual cash flow, 0-15% annual appreciation
- Buy Shares Fee: 2.5% (waived for new property listings)
- Sell Shares Fee: 2.5%
My Take: An affordable way to buy fractional shares of rental properties, with full liquidity to sell at any time. But receiving returns via cryptocurrency adds friction and turns off some would-be investors.
What Is Lofty.ai?
Lofty is an online marketplace for buying and selling shares of rental properties. That includes single-family rentals, multifamily properties, and mixed-use properties.
The platform doesn’t buy properties and then recoup their investment by selling shares. Instead, they merely act as the marketplace, connecting buyers and sellers. They screen sellers and properties to ensure they meet Lofty’s standards, but they never actually own any properties themselves.
As an investor, you can buy shares in any property listed on the marketplace. And you can then turn around and sell those shares at any time. While you own the shares, you collect rental income every day.
It’s a great premise, and it works — if you’re comfortable with the blockchain technology and cryptocurrency transactions that support it. So how does buying and selling shares work on Lofty.ai, and what’s with the connection to cryptocurrencies?
How Lofty.ai Works
When a seller lists a property on Lofty’s platform, ownership transfers to a DAO (Decentralized Autonomous Organization) LLC. Ownership in that LLC gets split into $50 tokens with ownership history documented via blockchain.
Investors like you and me buy these tokens, or shares if you prefer. Once all initial $50 shares sell out, the shares start trading on Lofty.ai’s secondary market. At that point, share prices start floating based on what buyers are willing to pay and sellers are willing to accept, just like the stock market. Sellers set an asking price with limit orders, and buyers can either buy at the lowest asking price or submit their own limit order for a lower bid amount.
You buy shares with money on your Lofty.ai account balance. You can fund your account by transferring money by ACH (0.8% fee, capped at $5), by wire (free but a $50,000 minimum transfer), with a credit or debit card (2.9% fee plus $0.30), or with supported cryptocurrencies (ALGO, USDCa, and STBL). Once you buy a share or token, you start earning daily rental income for that property.
Selling shares is where it gets tricky for anyone not fluent with cryptocurrencies. When you sell a share, you receive payment in USDCa, which is a stablecoin tied to the U.S. dollar. But it’s not widely used even in the crypto community, so you have to first convert USDCa to Algorand (ALGO) on either the MyAlgoWallet or Pero Wallet. You can then transfer it to a cryptocurrency exchange such as Coinbase, where you can sell and withdraw it in U.S. dollars.
Sound like a lot of work? Lofty knows it is, and they’re working on a way to sell your property shares to receive actual cash.
Advantages of Lofty
Lofty offers plenty to like as a real estate crowdfunding platform. Consider the following upsides as you review Lofty as a marketplace to invest in fractional ownership in real estate.
Liquidity & Secondary Market
The huge differentiator that sets Lofty apart from most real estate crowdfunding websites is its secondary market, letting you buy and sell shares at any time. That addresses one of the greatest drawbacks of real estate investing in general: the lack of liquidity.
Many real estate crowdfunding platforms require you to leave your money locked up for years. If they do let you cash out early, they slap you with penalties. So the ability to buy and sell shares of rental properties at any time takes away some of the fear of investing.
Low Minimum Investment
Removing another major obstacle to real estate investing, Lofty sets share prices (token prices) at $50 apiece for new offerings. I can only think of a few other real estate crowdfunding investments that let you invest with that little (Fundrise, Groundfloor, and Concreit).
After the initial sale of shares — which you can think of like an IPO — share prices float on the market. You can buy some shares for as little as $40 on the Lofty marketplace.
What the #%& are real estate syndications, and do they really earn 15-50% returns?
Non-Accredited Investors Allowed
You don’t have to be a wealthy accredited investor to buy shares on Lofty. Anyone with $50 in their bank account can invest.
International Investors Allowed
For that matter, you don’t have to be a U.S. citizen or permanent resident either. Foreign investors can invest on Lofty’s crowdfunding platform as well.
Daily Rental Income
Not many investments pay out daily. Beyond being fun to watch the money come in every day, it also means more rapid compound returns on your investments.
Just don’t expect it to rain in your account. In most cases, you’re still looking at 5-12% annualized returns.
As a final thought here, you receive rental income in U.S. dollars, not cryptocurrency.
Diverse Property Options
At the time of this writing, the Lofty.ai marketplace features 145 properties in 15 real estate markets across the country. And at $50 a pop, you could spread a relatively small amount of money over many properties in over a dozen cities.
Detailed Information for Each Property
Property listings on the Lofty marketplace feature a wealth of information. Beyond the basic financials of the purchase price, current rent, property taxes, insurance, and other operating expenses, you can also view home inspection reports, property valuation reports from HouseCanary, renovation details, closing statements, purchase contracts, and more.
You can also view the current occupancy status, recent property updates, and information about the neighborhood, along with a slew of other information.
Polished Online Platform
As befits such a high-tech real estate company, Lofty’s online marketplace and platform feels polished and professional. From interactive visuals to a clean interface, expect a slick user interface.
One particularly nice touch is their visual returns calculator. For any property, you can use sliding scales to select the appreciation, cash-on-cash return, and number of tokens purchased, and it graphs your projected compound returns over time.
Vote on Property Decisions
Owning even a single share of a rental property entitles you to vote on decisions regarding property management and selling the property. Even fractional real estate owners are still owners, and you get a say in all decisions.
$25 Signup Bonus
When you click through our referral link to Lofty.ai, you receive a $25 bonus to kick off your investments. (We get a similar bonus, for full transparency in our Lofty review!)
That means you instantly earn a 100% return on your first $25 invested on Lofty’s platform.
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Downsides of Lofty.ai
For all those impressive upsides, Lofty comes with its share of drawbacks. Keep the following in mind as part of your Lofty review and due diligence.
No Cash Option When Selling Shares
When you sell your property ownership tokens, you get paid in USDCa: a stablecoin cryptocurrency. Sure, it’s tied to the U.S. dollar, but that doesn’t assuage every investor’s concerns.
Lofty promises it’s working on a way to get paid out in actual cash when you sell your shares, and that can’t come soon enough for some investors.
Fees for Buying & Selling Shares
Lofty charges significant fees for both buying and selling shares. When you buy or sell shares on their secondary market, you pay 2.5% on each transaction.
Granted, Lofty waives that fee for new properties during their initial offering. But even the 2.5% fee for selling shares is higher than Fundrise’s early withdrawal penalty of 1% on its eREITs and eFunds, and the Lofty transaction fee never expires.
Bear in mind too that Lofty charges a 0.8% fee on inbound ACH transfers. It’s capped at $5 per transfer, and you can avoid it by transferring funds into your Lofty account by cryptocurrency, but that comes with its own headaches.
Inaccurate Cash Flow Estimates
I particularly don’t like how misleading Lofty’s returns forecasts are.
When they showcase a property’s expenses, they ignore vacancy rate, repairs, and maintenance. Given that these expenses often add up to 20% of the gross rent, ignoring them means woefully overestimating returns.
That means you need to calculate the real estate cash flow for prospective properties yourself. Use an independent rental cash flow calculator to more accurately forecast returns.
How Lofty Compares
Wondering how Lofty compares to other competing real estate crowdfunding platforms?
First, only two other crowdfunding platforms offer anywhere near the same liquidity: Concreit and Stairs by Groundfloor. Both pay in the 4-6% range for return on investment, and both are investments in pooled funds of loans secured by real property (not equity investments such as fractional ownership). Concreit dings your returns by 20% (but not your principal investment) if you sell within the first year, and it takes 30-60 days from initiating a withdrawal until you receive cash in hand.
The most similar investment model however is Arrived (formerly Arrived Homes, full Arrived review here). They too offer fractional interest in rental properties, with a minimum investment of $100. However, there’s no secondary market for selling shares, so you’re stuck with your shares until the property sells in 5-7 years (or thereabouts).
Fundrise and Streitwise let you buy shares in funds that own multiple investment properties. But they hit you with a penalty if you sell shares within five years, and it can take months to sell and liquidate your shares. That said, the Fundrise early redemption fee of 1% is still lower than the standard fee of 2.5% to sell shares on Lofty. (For more details, read our full Fundrise review.)
In short, no one but Stairs by Groundfloor offers the same liquidity as Lofty, and they offer debt investments that pay 4-6% returns rather than ownership interests in properties. But Lofty’s fees for both buying and selling discourage casual trading and incentivize long-term investing.
Should You Invest Through Lofty.ai?
If you don’t have $50,000 for a down payment on a rental property, Lofty offers an easy way to invest just $50 for fractional ownership in one. Sweetening the deal further, you can sell at any time, removing the long-term commitment that usually comes with real estate.
Just don’t plan on day trading shares in rental properties. The 2.5% fee for both buying and selling shares means you should still consider them long-term investments, albeit ones with an instant exit strategy if you need it.
Finally, get comfortable with the notion of receiving payouts from selling shares in cryptocurrency. Yes, USDCa is a stablecoin tied to the U.S. dollar, and that removes some risk and volatility. But it still leaves you with a tortuous process to convert rental property tokens into cold hard cash.♦
Have you invested with Lofty.ai? What have your experiences been?
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About the Author
G. Brian Davis is a real estate investor and cofounder of SparkRental who spends 10 months of the year in South America. His mission: to help 5,000 people reach financial independence with passive income from real estate. If you want to be one of them, join Brian and Deni for a free class on How to Earn 15-50% on $5K in Real Estate Syndications.
Love that you can buy and sell tokens at any time. Too rare in real estate crowdfunding.
A unique style of investing. Kinda fun to see platforms getting creative to solve traditional problems like lack of liquidity in real estate investing.
Diversifying real estate investments is just getting easier and easier. Love it
Great concept. Not big on getting paid out in crypto, but I’m glad to see they’re actively working on paying investors in US dollars. Might buy a share or two to test it out, and hopefully by the time I want to sell they can pay me in greenbacks.
I hear you Charles! That’s one nice thing about this and some other real estate crowdfunding platforms: you can dip your toe in the water with less than $100.
Interesting use of blockchain technology. Goes to show that blockchain is good for more than just crypto. But I’d really like to see them offer payouts in U.S. dollars, adds a lot of friction to mess around with crypto, even if it’s a stablecoin.